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Extending the national living wage to young people – can you afford it?

We've been here before. In April 2016 the Government announced that going forward, employees and workers would on their 25th birthday – overnight - be entitled to a new, increased minimum wage called the National Living Wage. The National Living Wage is a compulsory amount payable to over 25s and is different from the so-called real living wage published by the National Living Wage Foundation each year, which varies depending on what part of the country you live in.

The Government is due to consult on whether the National Living Wage should be extended to those aged between 18-24. We could, therefore, once again be facing substantial overnight increases to our bottom lines as a result of a new minimum pay rate.

What's all the fuss about, some might say – when you look at the current minimum wage rates, it's only an increase of a couple of pence here and there. The problem is that enhancing the pay of one group of individuals inevitably leads to increases having to be made across the business as a whole. If 18 year-olds starting their first ever job are now entitled to the same minimum pay as 25 year-olds, it will inevitably mean that businesses will have to fork out more than the minimum wage for their more experienced employees. Increasing the salary of those who are on minimum wage will then lead to inevitable increases to the salaries of those who supervise them, and so on and so forth…

There are fierce arguments put forward by both sides. On the one hand, the under 25s argue that in many instances, they have the same living costs as their colleagues who are over 25 and that age is an incorrect (in fact, discriminatory) determining factor for setting minimum wage rates. On the other hand, businesses argue that those under 25/starting their first job need more supervision and instruction, which justifies a lower rate of pay.

We recently wrote a piece on the so-called intergenerational contract, and the fact that many young people feel they are getting a raw deal. Extending the National Living Wage to 18-24 year olds will, if it goes ahead, no doubt be heralded as a way of tackling some of the issues that young employees and workers face. However – the lower rates for under 25s have in the last few years encouraged businesses to take on younger workers with a view to training them up. If this lower rate is taken away, where is the incentive for a business to take on a fresh-faced 18 year old, with no experience, straight out of school or college? Will extending the National Living Wage actually make things worse for young employees?

Some of you may read this article happily in the knowledge that you already pay all of your employees in excess of minimum wage rates. If you pay your employees more than the real living wage, that is a big selling point for your business. The current real living wage rates are set at a minimum of £8.75 per hour across the UK and £10.20 in London.